17 minutes 39 seconds
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Samsung is a brand name that's everywhere in more than 100 million U.S. Households. Android phones, TVs, refrigerators, microwaves and unconventional displays.
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So the 13 inch display can be as big as 17 inch. This is the future of display.
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But there's a huge lesser-known side of Samsung that lately has made it 1 of the world's most important and valuable companies. It's not just making devices. It's making the chips that power them.
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People probably don't know that we've led memory for 3 decades.
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Samsung is the leader in memory chips. Think long and short term data storage.
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They are the titan. They have, you know, nearly 50 percent share in both DRAM and NAND.
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And it's the world's second biggest maker of the most advanced logic chips, the kind in Tesla's, supercomputers, AI, smartphones and so much more. We recently went inside Samsung's Austin chipmaking factory or fab in the first in-depth tour ever given to a U.S. Journalist. And how many chips are you pumping out every day here?
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Now it's gunning to overtake the massive advanced chip leader, Taiwan Semiconductor Manufacturing Company.
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We do not settle to be number 2.
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It ended 2022 with $245 billion in annual revenue. For context, that's 47 billion more than Microsoft. But since then, prices for memory chips have taken a dive, and they're expected to fall up to 23 percent more in Q2 2023. In April, Samsung reported dismal earnings for the first quarter of 2023, with profit plunging 95% to its lowest level since 2009. In response, the company cut production of memory chips.
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But it doubled down on Foundry, the side of its business that makes custom logic chips for outside customers. It's building a $228 billion megacluster of 5 new fabs in its home country of South Korea, scheduled to come online in 2042. And in the U.S., where the $52 billion Chips Act aims to reshore chip manufacturing, Samsung's building a huge $17 billion fab in Taylor, Texas, promising to make its first advanced chips in the U.S. Next year.
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What's going on is just remarkable. It's enormous.
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Really want to be a bedrock for U.S. Industry.
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CNBC got a rare interview with the head of Samsung's U.S. Chip business, Jinman Han, and brings you inside its Texas sites to find out how the Korean powerhouse plans to dominate not only devices, but U.S. Chipmaking. Samsung dates back 85 years to 1938, when founder Lee Byung-chul started it as a trading company for exporting fruit, vegetables and fish in Korea.
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His vision for our company to be, you know, eternal, strong and powerful. So he chose the name Samsung, which literally means 3 stars.
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To survive 2 major wars, it diversified into sugar refining, construction, textiles, insurance, retail, and it remains a multifaceted business to this day. Samsung Rising author Jeffrey Cain has been covering the company from Korea and the U.S. For over a decade.
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If you had transported yourself back into time 60, 70 or 80 years ago and asked the average person about Samsung, they just shrug their shoulders and say, I guess it's a little grocery store in Korea that no one's really ever heard of.
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Samsung Electronics, the division it's known for most, was established in 1969. The first Samsung TV came out in 1972. And just 2 years later, Lee bought Hankook Semiconductor in a bold move toward making it the vertically integrated consumer electronic giant it is today.
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The Lee family is, you could call it the most powerful family in South Korea, 1 of the most powerful families in tech.
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Samsung's first U.S. Offices opened in New Jersey in 1978. And by 1980, Samsung Semiconductor was born, with a fab in Korea. By the early 80s, it was making 64-kilobyte DRAM memory and had a new U.S. Office in Silicon Valley.
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Lee's son took over after his father's death in 1987, and its first mobile phone came a year later. Now, Samsung is the world's biggest smartphone provider, often neck and neck with Apple. Just a decade after making its first memory chip, Samsung gained international notoriety with the world's first 64 megabit DRAM chip in 1992, placing it squarely at first place in memory where it remains today.
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Its presence is so ubiquitous in South Korea that they call their country the Republic of Samsung.
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In 1996, Samsung broke ground on its big fab in Austin, and it opened another 1 there in 2007. It got a new U.S. Headquarters building in Silicon Valley in 2015, designed to look like a three-layer stack of flash memory chips.
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This is based on 3 nanometer, which is the most advanced technology we have. And this price is almost the same as this size car.
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Han has been with Samsung for more than 3 decades. While its primary chip manufacturing still happens in South Korea, it of course makes them in Texas as well as China. Besides devices, the biggest part of its revenue, some 57 percent, comes from memory. But as shoppers cut back amid rising inflation, demand has weakened sharply, especially for memory chips. That comes in the footsteps of a pandemic that involved peaking demand and supply chain disruptions, eventually culminating in a global chip shortage.
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It was really painful. When you look at your customers asking, you know, more chips, But there's no way you can provide that. It was so painful.
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But the new reality is far less demand. Smaller memory chip makers like SK Hynix and Micron cut production in late 2022. Samsung waited until April 2023 to do the same.
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We are now going through very worse slump in terms of semiconductor demand. And we believe that the market will rebound possibly by end of this year.
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Micron and SK Hynix started laying off folks. They've cut their spending on new fabs. Samsung is pushing forward, though, and they're not cutting back on spending despite it being unprofitable today.
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Instead, Samsung is shifting focus to Foundry, making computing chips designed by fabless chip companies. A big difference between Samsung and top foundry player TSMC is that Samsung makes its own chip designs for its own products, as well as for thousands of others.
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This includes Tesla, Sony, NXP, STMicroelectronics, Intel, soon AMD, IBM is also a customer. Qualcomm is, of course, their biggest customer, but they're moving significantly towards TSMC.
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Samsung stock has been trending down since the peak of the chip shortage in 2021, although it just hit a 52-week high despite dismal Q1 profits. This may be a reaction to the latest move in the geopolitical chip war between China and the U.S. In May, China banned products from U.S. Memory chipmaker Micron, which in turn could boost demand for Samsung. And Morgan Stanley recently named Samsung a top pick.
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In October, the U.S. Did place big restrictions on chip companies exporting their most advanced tech to China. But for now, Samsung and SK Hynix were given a one-year waiver to operate their existing chip fabs in China.
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The Department of Commerce really crafted these rules to make sure that those existing fabs aren't impacted. But Samsung and SK Hynix don't build new fabs.
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When it comes to foundry, Samsung is 1 of only 3 companies in the world capable of manufacturing the world's most advanced chips, ranking second between TSMC and Intel. And with mounting U.S.-China-Taiwan tensions, the U.S. Is eager to entice all 3 to make more chips on American soil. Good motivation for President Biden's visit to Samsung in South Korea on his first presidential trip to Asia last year.
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By uniting our skills and our technological know-how, it allows the production of chips that are critical to both our countries and are essential, essential sectors of our global economy.
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The first factory that I started working in. We did four-inch wafer fabrication. I moved on to 5. I've done 6. Our factory here started at 8.
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John Taylor joined Samsung 26 years ago as part of the team at the Austin fab that broke ground in 1996. Now he heads up the whole Austin site.
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Everything is supposed to be bigger and better in Texas.
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Since first coming to the U.S. 45 years ago, Samsung says it's invested $47 billion here and has some 20, 000 U.S. Employees. Now it's expanding to a 17, 000 person Texas city about 30 miles north of Austin.
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Bringing Taylor on board is just going to increase their ability to source their chips domestically and not have to go into areas of the world where they may have some discomfort.
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Construction began here at Taylor, Texas, less than a year ago, and Samsung says it's on track to be operational by the end of 2024. It's a 1, 200-acre, $17 billion site, and it's going to be bigger than Samsung's Austin fab. It's also going to be producing the most advanced chips that Samsung makes in the U.S. Samsung says this big new growth in the U.S. Comes down to customer demand, largely due to the geopolitical risks swirling around Taiwan, where more than 90 percent of advanced chips are currently made.
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Chips such as the current self-driving chip in the Tesla cars is made in their Austin campus. But that foundry in Austin currently is for 14 nanometer and older technologies, right? So it's not the leading edge technologies yet. Samsung's 7 nanometer, 5 nanometer, 3 nanometer, that is all in South Korea.
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Over the last 30 plus years, the U.S. Share of global chip production has plummeted from 37 percent to just 12 percent. That's because it costs at least 20% more to build and operate a new fab in the U.S. Than in Asia. Labor is cheaper there, the supply chain is more accessible and government incentives are far greater.
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The CHIPS Act aims to change that, setting aside $52 billion for companies like Samsung to manufacture in the U.S.
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The CHIPS Act is helping us to overcome the differences in construction costs that we get out of Asia versus the United States. And there definitely is a difference.
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That's also why it's Samsung's goal to bring more of that supply chain to the U.S. Of the $17 billion total price tag for Samsung's Taylor Texas fab, $11 billion is going to machinery and equipment. Like the $200 million EUV lithography machines made by ASML, the only devices in the world that can etch with enough precision for the most advanced chips. And the massive machines made by Applied Materials, the world's next biggest microchip equipment company.
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Every chip in the world made goes through our machines a few times at least. So inside this machine, you are building billions and billions of transistors in a small chip, and 100 kilometers of wiring.
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Applied Materials is a key Samsung supplier already based in the U.S. And it's growing U.S. Operations at the same time as Samsung, with the biggest semiconductor project Silicon Valley has seen in 30-plus years.
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Why Santa Clara? This is where the collaboration happens between our customers, leading universities and our partners.
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But all this growth for Samsung in the U.S. Hasn't come without concerns. First, there's water. About 80 percent of Texas remains in drought. In 2021, Samsung used about 38 billion gallons of water to make its chips.
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Where will that water come from here, especially in periods of drought?
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So we have the Texas Water Board that's working on that and legislation we're working on this session to make sure that with a growing population in Texas, we will be able to provide for the water needs, not just the businesses, but also for our growing population.
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Now what you see here are the cooling towers behind us. And, you know, we've got a very aggressive goal this year in Austin, on our Austin campus.
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We want to reuse over 1000000000 gallons of water this year. And, you
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know, we take our sustainability goals very seriously. Even on our Taylor project, which we have starting up, our goal is there to reclaim over 75 percent of our water.
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And then there's power. Texas has a uniquely independent grid, largely cut off from borrowing power across state lines. In 2021, that grid failed during an extreme winter storm, leaving millions of Texans without power and causing at least 57 deaths.
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So electricity is the lifeblood of a semiconductor fab in a sense, right? There have been multiple instances where electricity has gone out and companies have had to scrap months of production.
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Samsung told CNBC its Taylor Fab will mark its first use of advanced chip etching EUV machines in the U.S. But each of those machines is rated to consume about 1 megawatt of electricity. That's 10 percent more than the previous generation. 1 study showed Samsung used more than 20% of South Korea's entire solar and wind power capacity in 2020.
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I already signed 12 laws to make the power grid more reliable, more resilient and more secure. And so we can definitely assure any business moving here, they will have access to the power they need, but also at a low cost.
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U.S. Expansion aside, Samsung has also faced major scandals at home in South Korea. Corruption charges have kept Samsung's founding Lee family in the headlines for decades.
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This is real life succession. That is what Samsung is. It's got the whole shebang. It's got the shareholder battles, the generational intrigue, the spying.
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The most recent member of Samsung's founding family to lead, JY Lee, served over a year in prison for bribery and was officially pardoned in August. He took the helm as executive chairman in October.
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Every major company out there, Apple, you know, they have to bend the knee to Samsung. They have to get their chips, their displays. This is a company that everybody has to go through at some point to get what they need because they're so influential and they're run by a convicted criminal.
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And then there's the big 7 year legal battle between Samsung and Apple.
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Samsung was arguing that its phones were simply using a form factor and a design that would be generic. This this rectangle with rounded circles. Apple said that they copied them. So they settled. Apple got a payment from Samsung.
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So Apple technically won. But when you add up all the legal costs, all the fighting all those years, it was just a neutral 0 on 0 for both sides.
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To this day, it remains a tricky relationship.
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They're supplying to Apple, but they're also competing with Apple. And on the flip side, Apple is buying their chips but then competing with their smartphones. That creates a really weird situation.
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end of the day, controversies haven't impeded Samsung's forward momentum. In 2022, it announced an ambitious new roadmap that would, in theory, put it ahead of the far bigger market leader. So is the ultimate goal to catch TSMC, to surpass TSMC?
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You know, 1 of the things I love about Samsung since I joined is Samsung is never satisfied with number 2 as a business, as a company. We're very aggressive.
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Now, Samsung's goal is to triple its capacity of leading edge manufacturing and to make industry leading 2 nanometer chips by 2025 and 1.4 nanometer by 2027.
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I mean, if Samsung hits their targets, they'll leapfrog ahead of TSMC. But that's a big if. TSMC is the only 1 that the industry trusts to hit their roadmap.
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As geopolitical tensions mount around China and Taiwan, customers are eager for a second source for advanced chips beyond TSMC. Intel, the next biggest advanced chip maker, is also adding manufacturing outside Asia, building big new fabs in Ohio and Europe.
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We can't be relied upon hostile countries for our everyday needs. And so The United States of America needs to make sure that we are manufacturing everything that we need. We learned that during the time of COVID and we shall not make that mistake again.
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But as Samsung races into leading edge chips, will it lose focus on legacy chips, the kind that saw the biggest shortages during the pandemic, slowing down production of everything from cars to game consoles.
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This factory that we're in right now is a mature node factory, or some people would call that legacy. But there's no there's no pulling back here. It's really full steam ahead.
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But now the AI boom means entirely different chips, namely GPUs from NVIDIA, have taken center stage. NVIDIA relies primarily on TSMC to make its chips, giving shares of the Taiwanese giant a boost.
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There are more and more people around the world who can make memory chips and to stay ahead of the game, you've got to get into the newer, some of the newer logic technologies.
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Samsung's decision to pull back on memory and focus more on Foundry, which is all it makes in Austin now, means more custom chips for customers, including perhaps those driving the large language model craze.
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They're going to be diving deeper into the logic chip segment. So the AI chips, the future applications for semiconductor technology. I think that this would place them more in a segment with Nvidia.
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But the question remains, is this truly the future for Samsung chips? And can it be achieved in Texas, where Taylor says making 3 nanometer chips in 2024 is only the start?
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We currently just have 1 fab an ounce there, but plenty of room for more. And really the what next is looking at what the market needs, what our customers are asking for, and being ready to deliver and hopefully right out of Taylor, Texas with more factories and more investment there.
Omnivision Solutions Ltd